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"Walt was never afraid to dream. That song from Pinocchio, 'When You Wish Upon a Star,' isthe perfect summary of Walt's approach to life: dream big dreams, even hopelessly impossibledreams, because they really can come true. Sure, it takes work, focus and perseverance. Butanything is possible. Walt proved it with the impossible things he accomplished."1

It is well documented that Walt Disney had big dreams and made several large gambles to propelhis visions. From the creation of Steamboat Willie in 1928 to the first color feature film, SnowWhite and the Seven Dwarves in 1937, and the creation of Disneyland in Anaheim, CA duringthe 1950s, Disney risked his personal assets as well as his studio to build a reality from hisdreams. While Walt Disney passed away in the mid 1960s, his quote, If you can dream it, youcan do it,2still resonates in the corporate world and operations of The Walt Disney Company.

COMPANY HISTORY

The Walt Disney Company (Disney) originated with its animated characters and expanded intoother adjacent businesses with the goal of bringing happiness to families via several different,

but related avenues. In October 1923, Walter (Walt) and Roy Disney established the DisneyBrothers Studio and began creating animated films that would eventually be the foundation ofDisney

3. In 1937, Disney created Snow White and the Seven Dwarfs. This film is the only

animated filmto rank in the American Film Institutes list of the 100 greatest American Films ofall time.4

In 1955, Disney opened its first theme park, Disneyland, in Anaheim, California, that spannedover 160 acres. Opening day was not without issues. The temperature was over 101 degrees,there was a plumbers strike, and the asphalt had been recently placed (which made the heels ofwomen shoes sink into the ground). Even with all the negative press on opening day, Disneylandhas still been one of the most successful, frequently visited theme parks in history. The

construction of Disneyland was personally supervised by Walt.

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In December 1966, Walt Disney passed away from lung cancer. Although he was an avidsmoker, he was always careful not to smoke around kids. Walts passing did not stop his brotherRoy from continuing to build on his brothers dream. In 1971, Walt Disney World opened itsdoors in Florida. Roy Disney passed away in late 1971. At that point, control of the companypassed to Donn Tatum, followed by Card Walker and then Ron Miller (Walts son in law).6

Disney continued to expand by adding additional theme parks and media assets. In April 1983,Disney launched The Disney Channel. The original intent was to be a premium channel thatcatered to children and teenagers during the day and families in the evening. The Disney

channel, through the Mickey Mouse Club, is partially responsible for the success of stars such asBritney Spears, Justin Timberlake and Christina Aguilera.

The Disney Empire was also expanding internationally. In 1983, Disney opened Tokyo Disneyand in 1992 Euro Disney. Tokyo Disney, located east of the city, has two theme parks and threeDisney hotels. Euro Disney has two theme parks and seven hotels. Today, Disney has over 11Theme Parks and approximately 44 hotels surrounding the properties.7


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In 1993, Disney purchased Miramax Film Corporation from Harvey and Bob Weinstein forapproximately $70 million.8 Miramax operated as a separate unit of Disney. The Weinsteinbrothers continued to run Miramax under the supervision of Disney executives. By 2005Miramax was valued at over $2 billion, with an extensive film library that included PulpFiction and Shakespeare in Love.

The relationship between Disney and the Weinstein brothers was filled with disagreements, bothfinancial and strategic. One of the more significant disagreements came over the release of thecontroversial film Fahrenheit 9/11 that targeted President Bush during the terrorist attacks.Additionally, Disney claimed the Weinstein brothers paid themselves excessive bonuses in yearswhen Miramax was not profitable. In 2005, the Weinstein brothers left Miramax to pursue otherinterests. Eventually, in 2010, Miramax was sold to Tutor-Saliba Corp.9

Another major Disney acquisition took place on July 31, 1995 with the purchase of Capital Cities/ ABC for $19 billion.10 This gave Disney access to the television and cable networks of ABCand ESPN.

In May 2006, Disney purchased Pixar for $7.4 billion in a cash and stock transaction.11 Therelationship between these two companies began in 1997 with an agreement to create five filmsincluding Cars, Finding Nemo and The Incredibles. The deal was a mutually beneficialtransaction as it combined the computer animation power of Pixar with the marketing anddistribution strength of Disney. Along with the Pixar purchase, Steve Jobs, founder of Pixar andApple, joined the Disney board of directors.12

In 2009, Disney purchased Marvel Entertainment for about $4 billion. This purchase gaveDisney access to several comic book characters, such as Spider-man, X-Men, Captain Americaand Thor. The Marvel purchase should prove to be lucrative as Disney presents the various

characters through its many systems.

In October 2012, Disney acquired Lucasfilm from George Lucas for $4 billion in cash andstock.13 Lucasfilm is most well-known for blockbuster movie hits such as Star Wars and IndianaJones. Along with this purchase, Disney announced future Star Wars films that will be releasedin 2015. The Star Wars franchise films have earned over $4.4 billion in global box offices todate.

Operations

Disneys objective is to be one of the world's leading producers and providers of entertainment

and information, using its portfolio of brands to differentiate its content, services and consumerproducts. The company's primary financial goals are to maximize earnings and cash flow, and toallocate capital toward growth initiatives that will drive long-term shareholder value.14

Disney currently has approximately 1.8 billion shares outstanding and is worth approximately$90 billion. With annual revenue of $41 billion in 2011, the company balances rewardingshareholders through dividends, share buybacks and investing in current operations. According


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to Jay Rasulo, Disneys CFO, about 67% of the cash generated is reinvested in currentoperations.15

Disney and its employees are tasked with protecting the Disney brand around the world andpromoting the delivery of long-term value.16One of Disneys main objectives is satisfying the

financial needs of the shareholders. However, Disney goes beyond satisfying just shareholderneeds and places a significant emphasis on ethical behavior that impacts both families and theenvironment. Ethical standards at Disney do not just apply to the employees, but also to theBoard of Directors. Disneys Code of Business Conduct and Ethics for Directors

17governs the

actions of the Disney board, holds them to high ethical standards and makes them accountablefor actions taken on behalf of the company. Disney also has a code of conduct that deals withsuppliers and has very specific rules around discrimination, harassment and child labor.

Disney places a unique emphasis on the selection of the right people with talent to operate withineach of the business segments. Much of the culture that Disney has today has been inspired bythe legacy that Walt Disney left behind. Several books have been written about the culture

including The Imagineering Way which gives details related to the creativity of taking dreamsand concepts and transforming them into family entertainment. Even through large acquisitions,preserving the Disney culture has been a priority for Disney.

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Market Segments

Disney creates and distributes entertainment through five main market segments:

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Starting in 1998, we opened the Buzz Lightyear attractions in all of our parks locations. In 2008,

we opened Toy Story the Musical exclusively on the Disney Wonder cruise ship. The same year,

we opened the wonderful Toy Story Mania! attraction in Orlando and Anaheim.

In 2009, our Interactive Group released the Toy Story Mania! game for the Wii, which was a

successful title for us. Toy Story Playland opened at Walt Disney Studios Paris, and Toy Story

Land will open in Hong Kong later this year.

So with that market primed, we released Toy Story 3 in 2010. While we'd always planned to make

Toy Story 3, our Pixar acquisition put this project back into the hands of Toy Story's original

creators, who we knew would make a wonderful film.

Toy Story 3 delivered Disney's second biggest North American gross ever. . . The film's opening

weekend of $110 million set a new Pixar record. Its domestic box office totaled $415 million,

became the eighth biggest international release in history, earning $650 million in box office. The

film opened number one in 54 categories. Toy Story 3 became the fifth highest grossing

worldwide film of all time with almost $1.1 billion in box office. It's Disney's second highest

grossing film of all time, and it's the highest grossing animated title ever.

The DVD was the number one animated and number one family title in 2010 in North America,

the number one animated title in 2010 in Europe and the number one title in Latin America. We

expect ultimate retail sales of Home Entertainment and TV platforms will drive another $650

million in retail sales, which brings the retail sales total to about $1.7 billion.

But as a franchise film, Toy Story 3 is a much more powerful driver for our merchandise-licensing

business. The film had unprecedented support and shelf space at major retailers. For example,

Target allocated significant shelf space to and created a custom animation commercial for Toy

Story 3, and Toys "R" Us gave it a feature wall over the next three months, whereas this is

typically offered for about two weeks.

Sales have been strong across all categories. Toy Story 3's impact on our merchandising-licensingbusiness has been significant, and we expect the film will drive $7.3 billion in ultimate retail sales,

bringing the total retail sales to approximately $9 billion.

The books and magazines are sold in over 50 countries. The Toy Story Read-Along App was the

number one book app in 45 countries. We expect the publishing business to drive about $250

million in retail sales.

This film is also driving sales at our Disney Stores. It's currently the number three franchise at

Disney Store, growing to half the size of Disney Princess. We expect the franchise to drive $325

million in sales at the Disney Store. Toy Story 3 was also the top selling Disney game of the year,

and we expect about $220 million in ultimate retail interactive sales.

So, Toy Story 3 was also a critical and commercial success at the box office for the Walt Disney

Company. But since it's a franchise film, we estimate that it'll drive nearly $10 billion in ultimate

retail sales through traditional film channels and all of the ancillary markets in which we

participate.

. . . We don't allocate Parks revenue in this franchise analysis, so you don't see the impact on our

Parks business . . . but, we are confident that the film has greatly benefited our theme parks as

well.[T


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The Toy Story 3 franchise is a clear example of how Disney attempts to benefit by introducingits concepts and products to all of its market segments. Below is an overview of each of its fivebusiness segments; more detailed information on the market segments may be found in theExhibit.

Media Networks

Disneys largest segment is Media Networks; this segment covers Disneys operations in cablenetworks, broadcast television networks, radio networks and digital operations (see Exhibit 1).The Media Networks division comprised approximately 46% of revenues and 76% of incomebefore taxes in 2011. In fiscal years 2011 and 2010, revenues for the Media Networks divisionincreased 9.0% and 5.9%, respectively. A majority of the strength came from both CableNetworks and Broadcasting driven by ESPN, ABC Television and the worldwide DisneyChannels.22 Disney grew this segment through higher advertising rates in NFL, college football,NASCAR and MLB. The 2011 results were negatively impacted by the lack of expectedrevenues from the FIFA World Cup in 2010.

While the majority of the Media Networks segment operations focus in the United States, Disneydoes have some stake in international operations as well. The Media Networks segment uses adifferentiation strategy, with many of the operations targeting segments within the viewingaudience. This segment of the company is heavily regulated by the Federal CommunicationsCommission (FCC) in the United States, which dictates how many stations that the firm mayown as well as enforces guidelines for the content on the stations.

Media Network operations are separated into eight groups: ESPN, Disney | ABC Televisiongroup, ABC Entertainment Group, ABC News, ABC Family, ABC Owned Television Stations,Disney Channels Worldwide and Hyperion. ESPN is a division of cable stations geared towards

sports television. Disney | ABC Television group is a holding group under which Disney andABC shows are produced and distributed. AGC Entertainment Group focuses on televisioncontent shown on ABC. ABC New focuses on the news, documentaries and other factualtelevision content. ABC Family provides entertainment programming specifically designed forfamilies. ABC Owned television stations represent the actual broadcasting stations owned byDisney. The Disney Channels Worldwide represents childrens content. Hyperion is apublishing division providing digital and paper copies of written entertainment.

Parks and Resorts

The second largest revenue producer for Disney is its Parks and Resorts. As described by Tom

Staggs, the Chairman of Walt Disney Parks and Resorts, Now, at Disney Parks, we are knownfor the iconic assets that we build: our castles, hotels, and cruise ships. But, at the end of theday, these aren't our core products. We aren't in the attraction business, the hotel business, thecruise ship business; we are in the guest experience business. The great shared memories thatguests cherish and create every day at our parks helps keep people coming back year-after-year.23


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Parks and Resorts comprised approximately 29% of revenues and 19% of income before taxes in2011. In fiscal years 2011 and 2010, revenues for the Parks and Resorts division increased 9.6%and 0.9%, respectively. A majority of the increase in revenues was driven by higher guestspending and revenue from the Disney Dream Cruise ship which began contributing to revenuesin early 2011. Park attendance increased only 1% domestically. The March 2011 earthquake

negatively impacted results at the Tokyo Disney Resort.

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Parks and Resorts are the most capital-intensive segment of Disney, comprising over 70% of thetotal annual capital expenditures. Currently, Disney is working on the 963-acre site for ShanghaiDisney along with hotels and other retail shops and dining. In the United States, Disney ownsand operates Disneyland in Anaheim, CA; Walt Disney World in Orlando, FL; Aulani inKapolei, HI; and two cruise lines. The US properties contribute 79% of the revenue earned byParks and Resorts.25Overseas, the company owns 51% of Disney Paris, 47% of the Hong KongDisneyland Resort, and 43% of the Shanghai Disney Resort.26 In addition, the Tokyo DisneyResort in Japan operates under a licensing agreement with Disney. While these properties do notcurrently contribute as much to the firms revenue as the U.S. properties; they align with

Disneys strategic goal to grow internationally.

All of the major overseas operations have been created with the help of other entities. DisneyParis is managed and run by Euro Disney, S.C.A., a publicly traded company of which Disneyowns approximately 40%. The Hong Kong Disney Resort was developed by Hong KongInternational Theme Parks, LTD, consisting of the government of Hong Kong (which owns 53%of the company) and Disney (which owns 47% of the company). The Shanghai Disney Resort iscurrently under construction and is expected to open in December, 2015; this facility is beingdeveloped in concert with Shanghai Shendi Co, LTD, which is a 57% owner of the joint venture.With the Tokyo Disney Resort, a licensing agreement was created in which The Oriental LandCompany, LTD created and runs the property.

Disney properties are developed with amusement parks that are segmented into different lands,on-site hotel operations and dining facilities. The hotel operations overall enjoy an 83%occupancy rate, based on 12,091 rooms at an average rate of $253 per night.27 The parks andrides are designed by what the company calls imagineers. When Disney originally builtDisneyland, it needed a cast not only of people who could design and illustrate the dream, butalso writers, architects, interior designers, engineers, lighting experts, graphic designers, setdesigners, craftsmen, sound technicians, landscapers, model makers, sculptors, special-effectstechnicians, master planners, researchers, managers, construction experts, and more.28This crewof imagineers is the backbone of creating Disney resorts.


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Walt Disney Studios

Walt Disney Studios is the segment of the company around which all other Disney enterpriseswere originally built (see Exhibit 2). This segment consists of the animated and live-action films(released to theaters and direct-to-home), music (soundtracks and recordings), and theatrical

plays (on-stage and on-ice). The Studios create, produce, promote, sell, acquire and distributeiprojects under several companies within the Studios segment. 29 Most recently, Disney hasacquired Lucasfilm, which will likely be placed in the Walt Disney Studios portfolio.30 In 2011,Walt Disney Studios generated over $6 billion in yearly revenue; however due to highproduction expenses and administrative expenses, the segment only earned $618 million inprofit.31 On a positive note, this segment allows Disney to distribute its products worldwide andcan thus introduce audiences in underdeveloped countries to the many products that Disneyprovides.

Walt Disney Studios comprised approximately 16% of revenues and 8% of income before taxesin 2011. In fiscal years 2011 and 2010, revenues for the Studios division decreased 5.2% and

increased 9.2%, respectively. Fiscal year 2010 results were favorably impacted by hit moviessuch as Toy Story 3, Alice in Wonderland, Iron Man 2 and Princess and the Frog. Many of the2011 titles such as Cars 2, Pirates of the Caribbean: On Stranger Tides and Thor could notsurpass the prior year hits.32

Walt Disney Studios consists of: Walt Disney Studio Motion Pictures, Touchstone Pictures,Marvel, DisneyNature, Walt Disney Animation Studios, Pixar, Disney Music Group, and DisneyTheatrical Group. Walt Disney Studios Motion Pictures produces family movies that includelive-action. Touchstone Pictures produces movies with more mature content. Marvel representssuperhero content created under Marvel. DisneyNature provides documentary movies based onwildlife and nature. Walt Disney Animation Studios and Pixar produce animated films. Disney

Music Group represents several musicians. The Disney Theatrical Group provides liveentertainment both on the stage and on ice.

Disney Consumer Products

The Consumer Products segment of Disney brings the two-dimensional video concepts thatDisney produces to consumers in three-dimensional products, allowing Disney to furthercapitalize on the entities that the corporation creates. These products are often available in formssuch as: toys, apparel, home dcor and furnishings, stationery, accessories, health and beauty,food, footwear, and consumer electronics.33 The products sold through Consumer Productstypically fall under three separate arms of the division: Merchandise Licensing, Publishing, and

the Retail business (see Exhibit 3).

Consumer Products comprised approximately 7% of revenues and 10% of income before taxes in2011. In fiscal years 2011 and 2010, revenues for the Consumer Products division increased13.9% and 10.4%, respectively. These results were favorably impacted by Cars merchandise andMarvel properties.34


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Disney Interactive

The smallest segment is Disney Interactive, which operates as both interactive media andinteractive games (see Exhibit 4). This segment introduces consumers to Disney products andprovides consumers a way to play with the characters in many of the Disney franchises. The

majority of the revenue generated in this segment is from the sale of electronic games, but somerevenue is also generated from advertising, sponsorships and subscriptions.

Interactive Media comprised approximately 2% of revenues in 2011. However, this divisionreported a loss of $308MM in 2011. The results of this division were negatively impacted by theacquisition of Playdom in late 2010. According to CEO Bob Iger, Disney plans to deliver aprofit in this segment by 2013.35More detailed financial reports, including segment reports, arefound in Exhibits 5A-C.

Human Resources

The Management Team

Disney is led by its Chairman and CEO, Robert A Iger, who took over for Robert Eisner in 2005.While Eisner was a capable leader who forcefully led the company, he left the company with afair amount of tension after missing financial targets and fighting with the companys fracturedBoard of Directors, led by Roy Disney, Walt Disneys cousin.

Iger has successfully eased tensions within the firm and also began expansion of the company.During his tenure, Disney has purchased Pixar, Marvel, and more recently, Lucasfilm. All ofthese acquisitions have been in line with Igers objectives of developing the most creativecontent, taking advantage of the latest technologies and innovations, and strengthening the

Disney brand name outside of the United States. While Disney has generally improved underIgers management, the firm has invested billions of dollars in its parks and resorts worldwide.Not all of Disneys shareholders agree that the results are strong enough to warrant theinvestment.36

That being said, Disneys Board extended Igers contract, originally set to expire in 2013. Igerannounced that he intends to retire as CEO from Disney when his new contract ends in March,2015 at the age of 65. He then plans on stepping down as Chairman of the Board in June, 2016.While Igers successor has yet to be announced, two of the more likely candidates are ThomasStaggs (Chairman, Walt Disney Parks and Resorts Worldwide) and Jay Rasulo (Chief FinancialOfficer).37

Since the beginning of 2010, Thomas Staggs has acted as the chairman of Walt Disney Parks andResorts. From 1998 through the end of 2009, Staggs operated as the Senior Executive VicePresident and CFO; he originally joined Disney in 1990 as a Strategic Planning Manager.Staggs chances of being promoted to CEO greatly rest in his ability to manage the constructionof the new Disney theme park in Shanghai and the growth of attendance at the other theme parks.


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Jay Rasulo is the current Senior Executive Vice President and CFO. He was previously theChairman of Walt Disney Parks and Resorts and swapped responsibilities with Thomas Staggson January 1, 2010. Rasulo joined Disney in 1986 as a Strategic Planning and DevelopmentManager. Rasulos chances of becoming CEO will largely be dependent on his ability tomaintain strong economic growth for the company.

The Board of Directors

Disney is a publically traded company with 1.8 billion shares outstanding valued at almost $90billion, as of November 2012. While both Fidelity Investments and The Vanguard Group bothhold over 4% of the firms stock, the largest single inside investor is Robert Iger, who owns alittle over 1.1 million shares.38

The companys Board of Directors consists of ten members, the most recent being Robert Iger.Susan Arnold has been on the board since 2007 and worked as the President of Global BusinessUnits for Proctor and Gamble until retiring in 2009. John Chen has been a Director since 2004

and is the Chairman and CEO of Sybase, Inc. Judith Estrin is the CEO of JLABS, LLC and hasbeen on the Board since 1998. Fred Langhammer joined the Board in 2005 and also acts as theChairman of Global Affairs for Este Lauder Companies, Inc. Aylwin Lewis has acted as aDirector since 2004 and is also the CEO of Potbelly Sandwich Works. Monica Lozano is theCEO of impreMedia, LLC and La Opinin; she has been on Disneys Board since 2000. RobertMatschullat is a private equity investor and has acted as a Director since 2002. Sheryl Sandbergis the Chief Operating Officer at Facebook and joined the Board in 2010. Lastly, Orin Smithacts as the Elected Independent Lead Director for the Board and has been a member since 2006;he retired as President and CEO of Starbucks in 2005.

The Employees

As of 2010, Disney employed 134,532 employees, of whom 93,722 were full-time, 23,694 werepart-time, and the remaining 17,116 were temporary and seasonal employees.39 Based on theresults of a corporate-wide survey, most of the employees are working at Disney because: theyare proud to be associated with brands represented by Disney, they feel that the company treatsthem with respect, they enjoy the corporate culture, they enjoy the challenge that their jobsprovide them, and they believe that they have been provided the tools to succeed at their job.Many of the tools provided to the employees come from their training. Disney offersdevelopment courses through the Disney University. Disney also offers career planningworkshops and talent planning processes for its employees.

The Media Industry

Although Disney is involved in a variety of industries, this section will focus on the MediaIndustry, specifically Television Broadcasting and Cable Networks, which is the industry fromwhich Disney derives the greatest portion of its sales. In 2010, the Media Industry had totalrevenue of $263 billion with an expected compound annual growth rate of 1.6% through 2015.40The combination of TV Broadcasting and Cable Networks continue to be the largest segment ofthe Media Industry, making up more than 50% of the industrys total value. Disney is the market


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leader in both Television Broadcasting and Cable Networks with shares of 15.3%41and 15.6%42respectively. While this section will specifically be dealing with the US Media Industry, theUnited States only accounts for about 30% of the global media industry value.43

Television Broadcasting

The TV Broadcasting industry has declined at an average annual rate of 0.9% to $37.3 billion inrevenue over the past five years leading up 2012, but revenue is expected to increase by 1.5%with a 14.2% profit margin in 2012. Industry performance is influenced by many factors:external competition, including competition from cable and satellite TV services, the rise inonline television streaming, and other media sources; technological investments, including theswitch to digital broadcasting and HD channels in 2010; the number of cable TV subscriptions;and trends in advertising. Advertising dollars, while cyclical relative to TV viewership trends,are also dependent on per capita disposable income and corporate profit.44 The traditionalbroadcasting industry is comprised of four main companies: Disney (ABC), News Corporation(FOX), NBC Universal and CBS Corporation.

Cable Networks

As of October 2012, the Cable Networks industry had total yearly revenue of $17.9 billion. Theindustry saw an annual growth of 5.2% from 2007-2012 and is projected to have an annualgrowth of 1.9% from 2012-2017. The industry is comprised of about 400 businesses, includingDisney, Viacom Inc., Comcast Corporation, Time Warner Inc., News Corporation and DiscoveryCommunications, which share a total of $2.6 billion in yearly profit. Industry performance isdependent on many key external factors such as the number of cable subscriptions, technologicalchanges, per capita disposable income, total US advertising spend, and time spent on leisure andsports.45

Media Industry Market Trends

Competition in the media industry is high and stems from multiple prongs: competition forviewers, advertising dollars, carriage by multi-channel video service providers (MVSPs) andprocurement of sports and other programming. In order to garner as many viewers as possible,media companies have to fight against other television and cable networks, individual televisionstations and other media (including DVDs and the internet). Viewership levels fluctuatethroughout the year, usually highest in the fall and lowest during the summer months.Advertising dollars fluctuate with viewership trends and advertiser budgets. Companies mustcompete with other TV and radio networks, independent stations, MVSPs and other media (print,

digital, outdoor, etc.) to receive their share of advertising revenue.

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The broadcast TV and cable business model has seen significant changes and will continue to doso as the viewer experience becomes more customized and interactive. The broadcast TVindustry currently earns 85.5% of its revenue from advertising dollars. While TV is still a high-powered advertising platform, demand has decreased over the past five years. With increasedcompetition from emerging media types, such as online streaming and digital video recorders(DVR), TV audiences will continue to be more fragmented and viewership is forecasted to


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decline, leading to decreased television ratings overall. Additionally, these platforms reduceaudiences attention span for commercials, which is a major issue as declined ratings drivesdown the amount advertisers are willing to pay for commercial time. 47

Key Players

News Corporation

News Corporation has a 12.8%48market share of the TV Broadcast Industry and a 9.5% 49shareof Cable Networks. Industry brand names include FOX, MyNetworkTV, FSN, FX, SPEED,FUEL TV, and National Geographic Network. As part of News Corporation, Fox TV StationsInc. has 203 FOX affiliates and 173 MyNetworkTV affiliates, with 17 and 10, respectively,owned and operated by the company.50 Fox has a median viewer age of 45, the youngest of thefour major broadcast TV platforms NBC is 47, ABC is 49, and CBS is 53. This puts Fox in aposition to attract viewers aged 18-49, the main demographic for advertisers, which explainswhy almost all of Foxs revenue stems from advertising dollars. News Corporations has recently

forayed into the Cable Networks industry with its Fox branded news and sports networks. NewsCorporation is anticipated to have $4.8 billion yearly revenue from Broadcast TV 51and $1.7billion from Cable Networks52in 2012.

Viacom Inc.

Viacom competes in both the TV Broadcast and Cable Networks industries with market shares of3.8% and 10.8% respectively. In 2006, Viacom split into two separate entities: Viacom Inc.,which includes MTV, BET, Paramount Pictures, Paramount Home Entertainment and FamousMusic, and CBS Corporation, which combines CBS and UPN broadcast networks, Viacom TVStations Group, Infinity Broadcasting, Viacom Outdoors, the CBS, Paramount and King World

TV production and syndication operations, Showtime, Simon & Schuster and Paramount Parks.Industry brand names include CBS, CW, MTV, VH1, TV Land, Nickelodeon, CMT, TNN,Showtime, BET, and Comedy Central. CBS delivers broadcast TV programming through CBSEntertainment, CBS News and CBS Sports. CBS owns and operates 28 television stations in 15of the top 20 US markets.53 Viacoms cable networks are separated into four distinct groups thatcater to clearly defined target audiences: music and logo, kids and family, entertainment, andblack entertainment.54 In 2012, Viacom is expected to earn $1.4 billion from its broadcast TVsegment55and $2.3 billion from cable networks.56

Comcast Corporation

Comcast Corporation holds a 7.6% market share of the TV Broadcast industry through NBCUniversal, which is co-owned with General Electric, who has a 49% ownership.57

Additionally,Comcast Corporation is a major player in the cable networks industry through Comcast CableCommunications Inc. with a 10.8% share.58 Industry brand names include: NBC, Telemundo,E! Entertainment TV, Style Network, G4, Golf Channel, Versus, USA Network, Bravo, CNBC,SYFY, MSNBC, and Oxygen. The NBC Television Network and Telemudo, Spanish-languagebroadcast TV, have a combined 234 affiliates across the US. NBC has 26 owned and operatedTV stations and has the exclusive TV rights to the Olympic Games, NFL Sunday Night Football,


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and the 2012 Super Bowl. Additionally NBC Universal has non-controlling parterships withmany networks and related companies including MSNBC.com (50%which is a joint venture withMicrosoft), Hulu (32%), The Weather Channel (25%) and A&E Television Networks (16%),which includes A&E, The History Channel, The Biography Channel and Lifetime.59It isprojected for Comcast bring in 2012 yearly revenue of $2.8 billion from Broadcast TV60and

$1.9 billion from cable networks.

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Time Warner

Time Warner competes in the Cable Networks industry through its subsidiary TurnerBroadcasting System, with a 10.6% market share. Turner owns and operates eight cablenetworks in the US: TBS, CNN, HLN, TNT, Cartoon Network, Turner Classic Movies, AdultSwim, and TruTV. Turners flagship network, TBS, has been very successful with a lineupcombining original series, syndicated programming, and sports including MLB and NCAABasketball. As of October 2012, Turners yearly revenue is estimated to be $1.9 billion in theCable Networks industry.62

Discovery Communications

Discovery Communications has a 6.8% market share of the Cable Networks Industry. In theU.S., Discovery owns and operates nine TV networks, including Discovery Channel, The Hub,the Oprah Winfrey Network, TLC and Animal Planet. Discovery has also formed a joint venturewith Sony and IMAX Corporations to develop a 3-D TV network, showing its commitment andleadership in new content and technologies. Discovery is anticipated to have $1.2 billion yearlyrevenue from cable networks in 2012.63

Industry Regulation

Regulation in both the television broadcasting and cable networks industries is high. The TVbroadcasting industry is controlled by the Telecommunications Act (TA), which is enforced bythe Federal Communications Commission (FCC). The TA and FCC have banned mergersamong the top broadcast networks (ABC, NBC, CBS, and FOX), capped the percentage ofownership each network can have in a market to 39%, required all stations to switch from analogto digital transmissions, and controlled content prohibiting offensive content between 6:00 amand 10:00 pm.64 Fines for indecent programming can be up to $325,000. Additionally, all TVstations must be licensed by the FCC; licenses can be obtained for up to eight years at a time.An owner must renew its license once it expires in order to continue operations or they mustdivest the station.65 The FCC also regulates the cable industry by limiting consolidation among

companies (there is currently a 30% cap on horizontal ownership) and establishing policiesregarding channel usage, subscriber rates and privacy. There are also a multitude of laws andregulations for the cable industry on the state and local level dealing with a variety of topics suchas franchising and subscriber rates.66


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MOVING FORWARD

As Disney moves forward into a future of advancing technology and globalization, the companyhas some decisions to make. Its strategic goals have been to fully develop and monetize itsfranchises and increase its presence internationally. Its presence is a dominant force in the

United States, but how can its success translate overseas? Walt Disney was never afraid todream big; but as the margin of error continues to narrow in a technologically advancing society,how can Disney continue to adapt?


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EXHIBIT 1: SEGMENTS WITHIN MEDIA NETWORKS

ESPN

ESPN is an entertainment company serving the sports media industry. ESPN consists of over 50

business entities broadcasting over television, radio, through smartphone applications, podcastsand online. Of the 6,500 employees that the company houses worldwide, 3,900 work out ofBristol, CT. The company features individual and team sports as well as original sportsprograming and its flagship program, SportsCenter. The company was founded in 1979.

Disney | ABC Television Group

The Disney |ABC Television Group is composed of The Walt Disney Companys globalentertainment and news television properties, owned television stations, and radio and publishingbusinesses. In essence, Disney | ABC Television Group is the holding company of most of theDisney media networks that are not associated with ESPN. The group is based in Burbank, CA

and was founded in 2004.

ABC Family

ABC Family is a cable station in the United States that includes programming designed toentertain families. The station regularly broadcasts seasonal family programs, but has recentlydeveloped a string of edgy hits aimed at female viewers aged 12 to 34. This trend is being madein an effort to replace the programming that the WB aired before being cancelled. The companyis based in Burbank, CA and was founded in 2001.

Disney Channels Worldwide

Disney Channel Worldwide is a conglomerate of entertainment channels developing, producingand broadcasting childrens and families entertainment around the world. In addition to cabletelevision channels, the company supports the distribution of content via the internet and video-on-demand. The channels are broadcast to 169 countries around the world. The company isbased in Burbank, CA and was founded in 1983.

ABC Entertainment Group

The ABC Entertainment Group develops and produces ABCs television and digital content.This includes all of the daytime, evening, and late night offerings made by ABC. Some of the

groups offerings include: Dancing with the Stars, Castle, Modern Family, JimmyKimmel Live, and Greys Anatomy. The group is based in Burbank, CA and was founded in2009.


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ABC News

In a sister role to the ABC Entertainment Group, ABC News is develops and produces ABCsnews programing. Some of the offerings include: 20/20, Nightline, and Good MorningAmerica. The company has digital, television and radio properties. The company is based in

New York City, NY and was founded in 1962.

ABC Owned Television Stations

In addition to broadcasting on ABC, Disney owns eight television stations in major markets.Through these stations, Disney is able to reach 23% of the United States population. The ABCOwned Television Stations Corporation is based in Burbank, CA and was founded in 1948.

Hyperion

Hyperion is a publishing company that focuses on general interest books for adults and children.

In addition to hard cover and soft cover books, the company also offers eBooks and audio books.The company is based in New York City, NY and was founded in 1991.

Sources: The Walt Disney Company, Media Networks. http://thewaltdisneycompany.com/disney-companies/media-networks, Accessed October 30, 2012; About ESPN. http://espnmediazone.com/us/about-espn/, Accessed October

30, 2012; Maney, M. 2011. DATG_One_Sheet_FEB_11, Press release describing Disney | ABC Television Group,

February 23; Ulaby, N. 2012, Ratings Success? It's All In The (ABC) Family,NPR: Morning Edition, October 22.


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EXHIBIT 2: SEGMENTS WITHIN WALT DISNEY STUDIOS

Walt Disney Studio Motion Pictures

Founded in 1950 and headquartered in Burbank, CA, Walt Disney Studio Motion Pictures is the

arm of the Studio segment tasked with producing live-action, family-friendly films. The firstfilm created by the Studio Motion Pictures was Treasure Island, in 1950. The companycontinues to produce movies such as the Pirates of the Caribbean series and the latest addition ofAlice in Wonderland.

Touchstone Pictures

Other live-action films are distributed under Touchstone Pictures. These films typically includecontent that would not be considered synonymous with the Disney name. The group isheadquartered in Burbank, CA and was founded in 1984. The first film distributed underTouchstone Pictures was Splash in 1984. As Touchstone Pictures is a distribution channel, it

simply exists so that Walt Disney Studios can send its PG-13 and R rated materials to the market.Further, Disney reached an agreement with Steven Spielburgs DreamWorks Studios inFebruary, 2009 to distribute its content through Touchstone Pictures.

Marvel

Disney acquired Marvel on August 31, 2009 for $4 billion. The company originally began inManhattan Beach, CA in 1996. Through the acquisition, Disney can now monetize thethousands of Marvel characters through all segments of its business. The Marvel Studios mostrecently released The Avengers and are expected to release a third Iron Man, second Thor andsecond Avengers movie in the coming years.

DisneyNature

In 2008, Disney began DisneyNature to focus on the true-life adventures segment of films.This segment is based in Paris, France and is responsible for initiation, development andacquisition of high quality feature projects. Some of the projects distributed throughDisneyNature include: Earth, African Cats, and Chimpanzee.

Walt Disney Animation StudiosandPixar

Beginning in 1923, Walt Disney Animated Studios began creating animated films, starting with

Steamboat Willie, and bringing to market the first feature cartoon in 1937, Snow White and theSeven Dwarfs. The group has made family movies that are one and the same with the Disneyname such as Pinocchio, Peter Pan, Beauty and the Beast, and more recently, Tangled.The group is based in Burbank, CA and is still located on the site Walt Disney developed withthe proceeds from Snow White.

Pixar began in 1986 in Emeryville, CA and is known for its computer-animated feature films.Some of Pixars films include Toy Story, The Incredibles, Up and Brave. Disney


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purchased Pixar in January, 2006 for $6.3 billion. The goal of the acquisition was to mergePixars preeminent creative and technological resources with Disney's unparalleled portfolio.As it stands now, both Walt Disney Animation Studios and Pixar work independently, but sharetalents. For example, The Muppets, Tron and Wreck It Ralph are all Walt DisneyAnimation Studio productions with assistance from Pixar.

Disney Music Group

The Disney Music Group is an outlet for Disney to distribute soundtracks and originalrecordings. The company was formed in 1956 as Disneyland Records and is located in Burbank,CA. The group owns several record labels, including: Hollywood Records, Walt DisneyRecords, and Disney Music Publishing. In addition to owning record labels, the group developsmusic videos and operates Radio Disney. In the Disney way of monetizing assets through alloutlets, many of the musicians that perform for the Disney Music Group also act in the MediaSegment such as Selena Gomez and Miley Cyrus.

Disney Theatrical Group

The theater portion of Disney productions began in 1993 and operates from New York City, NY.The group has obtained much success by taking many of the products offered through WaltDisney Motion Pictures and Walt Disney Animated Studios and bringing them to the theater. Allof the productions to date have been musicals and operate both on and off Broadway. Examplesof the Disneys successful monetization of franchises in this category include The Lion Kingand Mary Poppins.

Sources: Keating, G. 2009. Disney, DreamWorks in distribution deal.Reuters News, February 9; Barnes, B and

Cieply, M. 2009. Disney swoops into action, buying Marvel for $4 billion. New York Times, September 1: B1;Trotta, H. Disney launches new film label DisneyNature; to produce outstanding nature documentaries with the

worlds top documentary filmmakers. PR Newswire, April 21, 2008; Mucha, Z. Disney to acquire Pixar; long-timecreative partners form new worldwide leader in quality family entertainment. Business Newswire, January 24,

2006.


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EXHIBIT 3: SEGMENTS WITHIN DISNEY CONSUMER PRODUCTS

Merchandise Licensing

The Merchandise Licensing division works to license the intellectual knowledge of Disney for

the use in products. Some of the larger properties that are handled are Mickey Mouse, theDisney Princesses, and the Disney Fairies. This segment also works with retailers to developspecialized promotional campaigns such as the designs on and the products that go inMcDonalds Happy Meals. Disney Licensing began in 1929 and operates out of Glendale, CA.

Publishing

Disney Publishing Worldwide publishes childrens media on a global scale. Media is deliveredas books, magazines, eBooks, and applications for smartphones and tablets. The media isbroadly categorized as story telling or learning material. This division of Disney operates out ofWhite Plains, NY and has been in operation since 1930.

Retail

The Retail business for Disney consists of retail shops and an online presence where Disneyproducts may be purchased. The stores are located across the United States, in Japan andthroughout Europe, with a total of over 340 stores around the world.

EXHIBIT 4: SEGMENTS WITHIN DISNEY INTERACTIVE

Disney Interactive Games

The Disney Interactive Games division creates and publishes video games for consumers. Thesegames are now available on video consoles, such as Disneys Epic Mickey, on mobile devices,such as Wheres My Water, and other online avenues. The firm was established in 1986 inGlendale, CA while the electronic gaming industry was still in its infancy.

Disney Interactive Media

The Disney Interactive Media segment was created in 1995 and is headquartered in NorthHollywood, CA. This segment provides family-friendly online content and also providesadvertisement for other Disney products. Some of the key products offered areDisneyBaby.com, Spoonful.com, and Babble.com.


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EXHIBIT 5A: THE WALT DISNEY COMPANY INCOME STATEMENT

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EXHIBIT 5B: THE WALT DISNEY COMPANY SEGMENT REPORTING

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EXHIBIT 5C: THE WALT DISNEY COMPANY BALANCE SHEET

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EXHIBIT 6: COMPETITOR FINANCIAL INFORMATION

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REFERENCES

1Mink, M. 2007. Walt Disney designed dreams. Investors Business Daily, July 5.2Himmelberg, M. 2005. Setting the bar high // In the years to come, Disneylands challenge will be to keep up itsaura of innocence while it keeps pace with a wiser clientele. The Orange County Register, July 17.3Disney, 2011 About Disney: Investors: http://thewaltdisneycompany.com/investors/fact-books, AccessedNovember 26, 2012.4Hayashi, C. 2007. AFIs 100 years... 100 movies 10thanniversary edition. American Film Institute. July 20.5Mink, M. 2007. Walt Disney designed dreams. Investors Business Daily, July 5.6Hollie, P. 1980. Disney restructures in line with film push. The New York Times, June 4: D1.7The Walt Disney Company, 2011, Form 10-k. Burbank, California: The Walt Disney Company: 8-11.8Orwall, B. 2004. Pulp Friction: After Years of Battling Miramax, Disney Might Redo the Script; Weinstein

Brothers Produced Many Hits, but Departed From Their Early Mission; Heat From 'Fahrenheit 9/11'; Wall Street

Journal, June 24, A1.9Nakashima, R. 2010. Disney completes $663 million sale of Miramax to construction magnate Tutor. AssociatedPress Newswire, December 3.10Business Wire, 1995, Disney, Capital Cities/ABC agrees to merge; $19 billion transaction will enhance

shareholder values by creating worlds leading entertainment and communications company,Business Wire, July

31.11Avalos , G. 2006. Disney purchases longtime partner Pixar for $7.4 billion, bringing together blockbuster movie

powers,Knight Ridder Tribune Business News, January 25.12Marr, M. and Wingfield, N. 2006. Disney sets $7.4 billion Pixar Deal; Jobs to take seat on board and play integral

role in setting creative course. Wall Street Journal, January 25, A3.13Disney, 2012, http://thewaltdisneycompany.com/disney-news/press-releases/2012/10/disney-acquire-lucasfilm-

ltd, Accessed November 25, 2012.14Disney, 2012, http://thewaltdisneycompany.com/investors, Accessed November 26, 2012.15Rasulo, J. 2012. Goldman Sachs 21stannual communacopia conference. The Walt Disney Company, September20, pg 3.16The Walt Disney Company, 2011, Form 10-k. Burbank, California: The Walt Disney Company: 3.17The Walt Disney Company, 2012. http://thewaltdisneycompany.com/content/code-business-conduct-and-ethics-

directors, Accessed November 5, 2012.18

Blassingame, K., 2003, Working their magic: Disney culture molds happy employees,Employee Benefit News,September 1.19Rasulo, J. 2012, Walt Disney Company at Citi Entertainment, Media and Telecommunications Conference

Final,The Walt Disney Company, January 5.20Rasulo, J. 2011,Disneys2011 Investor Conference Call Final,February 17.21Rasulo, J. 2011,Disneys2011 Investor Conference Call Final,February 17.22The Walt Disney Company, 2012, About Disney: Investors: http://thewaltdisneycompany.com/investors,Accessed November 10, 2011.23Staggs, T.Disneys 2011 Conference Call Final, February 17, 2011.24The Walt Disney Company, 2011, Form 10-k. Burbank, California: The Walt Disney Company: 18.25The Walt Disney Company, 2011, Form 10-k. Burbank, California: The Walt Disney Company: 31.26The Walt Disney Company. 2011. Form 10-K. Burbank, California: The Walt Disney Company: 7.27The Walt Disney Company. 2011. Form 10-K. Burbank, California: The Walt Disney Company: 32.28Dehrer, G. 2011. Imagineers in search of the future. Futurist, Volume 45, Issue 2, March 1.29Walt Disney Studios, 2012. About Us. http://www.waltdisneystudios.com/corp/about, Accessed November 12,

2012.30Gabler, N. 2012. Perspective: Its a brand-news day in Hollywood. LA Times (Online).November 10.

http://www.latimes.com/entertainment/movies/moviesnow/la-et-mn-ca-disney-lucasfilm-marvel-

20121111,0,7695955.story, Accessed on November 12.31The Walt Disney Company. 2011. Form 10-K. Burbank, CA: The Walt Disney Company. 32.32The Walt Disney Company, 2011, Form 10-k. Burbank, CA: The Walt Disney Company: 33.33The Walt Disney Company. 2011. Form 10-K. Burbank, CA: The Walt Disney Company: 18.


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34The Walt Disney Company. 2011. The Walt Disney Company Fourth Quarter and Full Year 2011 EarningsRelease, November 10.35Barnes, B., 2012. In makeover, Disney seeks to thrive on the internet; Entertainment giant relies on a softer sell

and more exclusive videos.International Herald Tribune, October 23. Pg 4.36Smith, E. 2011. Disney CEO Robert Iger to step down as CEO in 2015. Wall Street Journal (Online), October 7.37

Edmonton Journal. 2011. Disney CEO unveils exit plan.Edmonton Journal, October 8, D11.38Yahoo Finance, 2012. Major Holders. http://finance.yahoo.com/q/mh?s=dis+Major+Holders. Accessed November

11, 2012.39The Walt Disney Company, Disney Workplaces, 2010 Corporate Citizenship Report,

http://corporate.disney.go.com/citizenship2010/disneyworkplaces/overview/disneyops/, Accessed November 14,

2012.40 Datamonitor. January 2012. Industry Profile: Media in the United States. New York, NY:Datamonitor: 9.41 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 3.42 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 4.43 Datamonitor. January 2012. Industry Profile: Media in the United States. New York, NY:Datamonitor: 2.44 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 4-5.45 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 4-6.46 The Walt Disney Company. 2011. Form 10-K. Burbank, CA: The Walt Disney Company: 6.47 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 6,

13.48 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 22.49 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 27.50 Datamonitor. January 2012. Industry Profile: Media in the United States. New York, NY:Datamonitor: 41.51 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 22.52 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 27.53 Datamonitor. January 2012. Industry Profile: Media in the United States. New York, NY:Datamonitor: 22-23.54 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 24.55 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 24.56 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 25.57 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 23.58 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 25.59 Datamonitor. January 2012. Industry Profile: Media in the United States. New York, NY:Datamonitor: 32.60 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 23.61Waterman, Justin. October 2012. IBISWorld Industry Report 51321: Cable Networks in the US: 26.62 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 26-27.63 Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 28.64 Waterman, Justin. September 2012.IBISWorld Industry Report 51312: Television Broadcasting in the US: 28.65 The Walt Disney Company. 2011. Form 10-K. Burbank, CA: The Walt Disney Company: 6.66Waterman, Justin. October 2012.IBISWorld Industry Report 51321: Cable Networks in the US: 32.

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